SEZ service tax exemption extends to services used within the zone despite intermediary contractor payments, supporting stay relief.

Notification No. 4/2004-ST was applied to construction services used for a unit in a Special Economic Zone, and the exemption was found, at a prima facie stage, to extend to taxable services provided to an SEZ unit for consumption within the zone. The fact that payment passed through intermediary contractors did not, on the record, defeat the claimed exemption where the services were undertaken for and consumed by the SEZ unit. On that basis, the appellant established a prima facie case for waiver of pre-deposit and stay of recovery of service tax, interest, and penalties.

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Issues: Whether the appellant was entitled to waiver of pre-deposit and stay of recovery of the service tax, interest and penalties confirmed against it on the ground that the services were rendered for a unit in a Special Economic Zone through intermediary contractors rather than directly to the SEZ unit.

Analysis: The dispute concerned the applicability of Notification No. 4/2004-ST dated 31.03.2004 to construction services used for a unit located within the Kandla Special Economic Zone. The record showed that the construction activity was undertaken for the SEZ unit and that the services were consumed within the Special Economic Zone. The rejection of the exemption only because payment flowed through intermediary contractors was found, at a prima facie stage, to be at variance with the wording of the notification, which extends exemption to taxable services of any description provided to a unit in a Special Economic Zone for consumption within such zone.

Conclusion: The appellant made out a prima facie case for waiver of pre-deposit and stay of recovery, and the application was allowed.

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